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Friday, December 16, 2011

SPX, NDX, and Dow Update: Who Wants to Fade Santa?

From a technical standpoint, nothing happened yesterday. The markets may as well have been closed. Lots of people are talking about the bullish "inverted hammer" candlestick (so named because it looks like a candlestick) on the daily charts, but Friday's action is needed to confirm the bullish implications of this pattern.

Next week is the last trading week before Christmas, and traditionally it's a low volume week with a bullish bias. Of course, the week of Thanksgiving would be described the same way, and this year saw a pretty steep decline through Thanksgiving week (as predicted here).

Another interesting seasonal fact is that the Volatility Index (VIX) often bottoms in December. In fact, during many years, the low of the entire year (or very close) in VIX is reached shortly before Christmas (recent examples: 2003, 2004, 2006, 2009, 2010). So who wants to fade Santa?

Frankly, I'm scared of Santa. Always have been. Buried away somewhere, I have a picture of me as a baby, bawling my eyes out, while I'm being held by a mall Santa who -- judging by his facial expression -- clearly felt that this particular situation hadn't been thoroughly discussed during his training at Mall Santa School. So it's hard to get too bearish about the week before Christmas -- but I'm going to suggest it anyway.

The caveat here is that many markets are reaching levels which could generate a strong bounce soon. Yesterday, I used the analogy of a stretched rubber band: either it snaps back forcefully (possibly right into your face), or it breaks. This is the position the market appears to be in, and, as of yet, no key intermediate levels have been violated on the downside -- at least not in the major averages; several minor averages have already broken some key support levels.

The charts are now in a position where it's very difficult to predict which situation will actually play out. As I said, I favor the bearish resolution, but I have annotated the next chart to illustrate both potentials.

The preferred count shows the decline as a series of first and second waves, which, if correct, should be the prelude to a big third wave decline. The pressure is now on this count to perform or be eliminated. Friday should see some early upside bias under the expectations of this count, but next week the market would need to sell off strongly. If one were so inclined, Friday could provide some short entries with manageable stops (barring a huge gap up on Monday... now where have we seen that before?) and a lot of profit potential.

The bullish alternate count suggests the market will ultimately break above the October highs (before reversing to new lows). A sustained upside break of the red trend channel would be first warning to be alert to the bullish alternate count, and trade above the red dashed knockout level would indicate new highs are very likely.

The chart below uses the Dow Jones Industrial Average for form.

The next chart is the daily chart of the S&P 500 (SPX), and depicts the expectations of the bearish count over the short term. Note that the market is currently trading just above a theoretically-important support zone. The chart is annotated with "or (2)?" to show the expectations of where the bullish alternate count could top if it unfolded.

The final chart is the Nasdaq 100 (NDX), and it's the same chart I showed yesterday. The NDX continues to act like the weaker sister here and is actually below important support. One of the things I'd like to call attention to regarding this chart is that the count is much less vague than the SPX. The NDX shows a very clearly defined A-B-C pattern, and I have a really hard time imagining that NDX has not already topped its Minor (2) wave. In my mind, this lends credence to the argument that SPX and Dow have both topped as well.

In conclusion, I remain long and medium term bearish. Short term, my current expectation is that the market probably won't grant the much-anticipated Santa rally to new highs, which it seems everyone is waiting for. But there isn't any real confirmation yet either way, so it's prudent to remain alert to both scenarios... especially since Santa brings huge lumps of coal to investors who don't trade safe.

OMG - futures are UP !!!! As they are every day. Much like the sun rising in the morning. Must be because the Dax is up 8 cents. Actually, it's because my hedge fund wants to unload some positions - some for a tidy profit, some to reposition - so we gap the market up to find some chumps to buy the open while we then short what we just sold - like clockwork. GG

Pretzel, I remember yesterday you mentioned sustained trades above 1227 would imply something bullish. Is it still true today? looking at your SPX charts, we could go all the way up to 1250 without breaking your black trend line

morning all - nice article PL - clear stops to look at IF we are going higher. I think the count is balls on - especially with opex today - and mondays after opex always seem to be, let's say "interesting".

Kinda funny re-reading that article now. First off, my BKX target was a dead-on hit, though I don't know if anyone played it or not.

Second, the article ends with this: "My strong belief that we're headed lower in the near future hasn't changed. The key levels to watch are still SPX 1215 and 1190. Barring some type of central bank intervention, or the significant threat of such, a break of those levels should lead the SPX down into the low 1000's."

hey pl, i've been following you for a few weeks and your observations and analysis are top shelf all the way. appreciate all the hard work you do, i know with the time difference and what not it's a ton of effort on your part. i was curious about your own style of trading.. are you purely a day trader, or do you ever let your positions ride? sunday night you had a brilliant trade when you shorted es @ 1257, i'm pretty sure you got out of it in the 1230's somewhere. how do you decide when to exit something that's profitable for you?

I trade as a swing trader as well. It really depends on what the market is doing. When there's no strongly defined trend, or at inflection points, I day trade to make money while protecting myself. Speaking of, I took some shorts at (March) ES 1221 a few minutes ago...

I decide to exit when it either hits a target zone, or when it "looks" right. i.e.- market is approaching support, or indicators look ready, or market's putting in a potential double bottom/double top, or the wave structure looks right or wrong, etc.

Your blog, in 7th paragraph, says "The preferred count shows the decline as a series of first and second waves, which, if correct, should be the prelude to a big third wave decline." I think I don't understand at what degree these 1st and 2nd waves are at. Are these starting from (1) at the close of 12/08/11, with (2) at close of 12/09/11?

So I repeat, FORGET the alternate phantom bullish count---I mean, if there wasn't a highprobability bullish count, plus seasonality, plus q3 hyperinflation threats, plus blah blah 'world cb's in control' NEWS, always taking your propietary indicator up to 1000th of a point before it FAILS to fold, occurring 10 times over last 3 weeks,I mean, then it would be easy, right, and everybody would be on board the bigbear train unafraid and laughing, right?

So you know, I have MY own propietary indicator, and that is based on the amount and degree of 'BALLS FEAR to go short' quotient, of your 'supposed permabear' posters herein.

1. look at the perfect rounded top in your weekly dji chart today (and not just at the perfect trend channel), just like I pointed out a week ago, on the spx chart, right before it dropped over several percentage points over next few days. Slow forming rounded tops (with lessening volume) are notorious for their signs of buying exhaustion, and quite often lead to unexpected gap drops. Plus it is interesting that the upsection of the rounded top is tighter, more compressed in control, while the drop part of the rounded top, is looser, slacker, more confused, as though saying: 'hey, we're falling, this wasn't supposed to be happening, hey we're getting tired, where are the big buyers, and where's santaaaa, it was a sure thingggg, wasn't iiitttt?' (place here a sad amerikan soft face, with a questioning hurt look, staring at coal chunks in his babysmooth manicured hand).

2. I continue to REFUSE to believe, that the MAJOR multi-month, linear chart, downward trendline touching FIVE closing price peaks, will EVER be broken (MAJOR trendline that I pointed out to you last week, and you praised, before you got your panties all in a bunch, over with MY other EVIL 'subjective' posts HAHA).

3.I still feel CERTAIN, the 2007/2008 chart is KING, and has not failed YET, not even once, to FORETELL what will happen in 2011/2012, considering it is EXACTLY the same dilemma, except, MAGnified worlwide, by a factor of a 1000, IMO. The parallel of these 2 spx chart is uncanny, and over nearly a year, already. There is HUGE drop straight ahead, over 1000dji intraday, as I have foretold several times, is it UNavoidable---for it is ABsurd, that the dji is still near 12000, when it should be at 10000 at least, in order to have some bearish synchronicity percentagewise, with almost all the other major world bourses, ad most especially, the last european stronghold: the DAX.

So, as always, I REPEAT: The major BAD 'news' this time, next week, will HAVE to come from the usa itself, because gullible complacent amerikans won't sell BIG, until they are hit HARD at home, with their baby happy comfy christmassy dreamy bubbles, being STINKINGLY burst.

4.Gold and Silver have fully confirmed (as I have ASSURED you all, for MONTH now), that the SHIT is going down worldwide, way down---and it's called DEflation, and NOT fake cb bullshit inflation.

(And I enclose a great chart---from your dear buddy, fellow-rocker bobby p., and his ewi band---and it clearly shows the UTTER meaningless, over the fullness of mediem-term time, of the 'masters of the central bank universe are in control' bullshit NEWS).

So far... wouldn't be surprised to see it run up once more into that zone. If it starts building momentum on that run, though, be careful. Ideally, if it makes another run up, we want to see it losing momentum.

5. PLUS, December 2007 was a BEAR month----'cause Fat Santa was sick with bad case of herpes that year, or he took the day off since he didn't want to deliver bad news to amerikan kiddies, or, better yet---he ran off with one of his cuter girl elfites, because he got tired of doing rudolph. HAHA.

ha!I know nothing about message boards, but cobra has a way to highlight his comments so visitors can jump straight to his posts...may be worth investigating since you are so active on the board here. I think he uses twitter somehow.

looking for honest feedback there?....eh, you've had better.Love your humor Pretzel, but this one didn't tickle my funny bone...maybe you wrote it reallllly late at night? just about everything is funny to me when I'm sleep deprived. But then again, I always laugh at the wrong stuff anyway (I liked the rubberband in your face comment) but maybe I'm wrong and it was a smashing success.

Actually, I appreciate the reply. And I don't mind people posting a lot -- why is everyone so sensitive about that? Furr was doing that the other day, too. I actually prefer it to people just sitting silently -- feels like the board's more "alive" which I like.

Alright, I actually have to get some sleep. Surprised I made it this far, I had to struggle to finish the article without passing out. Always get a little bit of a second wind when the market opens, though... but fading fast here.

I should never mention rp to you, as you only see that. And you mean rp leave`s out that he has called the end of the bear rally 2 times, prior to now, and was wrong due to q1 and q2. You are correct, but you are missing the point. The point is they are NEWS, and government news are ALWAYS meant to MISlead. And there are just so many times you can lie, about someting which can no longer be hidden, as things are now (finally). There is NO 'recovery', of any kind, you can be sure of that.And MY personal point is the dead certain similarity, that has not yet failed even once, of the 2007/2008 chart to the current one, PLUS MY observation of the linear down trendline hitting 5 multimonth peaks, which is extremely unlikely, will be broken, for a multitude of reasons.

I assure you again, if you concur pms are toast, then, since I am 100% certain, there is ZERO decoupling now, the spx WILL CERTAINLY follow. MYSELF, I am once again betting BIG against amerikan new homebuilders, there's where most of the easy gravy lies, they are so over priced, they are ridiculous, even their insiders are SELLING their shares bigtime, at these absurd prices, chartwise. NO R-E-C-O-V-E-R-Y. Once this dawns on the 5th wave idiots that are buying these high priced shares, the stock prices will drop like rocks, just like the pm share prices did this week, and I was able to make back 3 quarters of MY capital, just riding their back. And ext month, I kick some serious amerikan new homebuilder ass, to get ALL MY capital back, plus a doubleup on profits. Not trading advice, this is MY stand.

"NDX has not already topped its Minor (2) wave"Problem with your notation...(2) is intermediate wave degree...If you are taking liberties with the EWT standard notation, is there an hyperlink where you have a legend or guide to the notation convention you are using besides standard Eliott? Thanks.

Follow my opinion because after losing 90% of my capital I was able to claw back to only down 25%? In a month. Do you know what the annualized return on that is? You may as well hit the casino, at least you get free drinks.

Yeah this looks like a complete a-b-c like PL was talking about, though I guess there could be one more thrust to new highs, but it doesn't seem likely to me as you've just stated. Next stop 1200-1204, I would think, that's where I'm covering and reassessing, but could easily plunge straight through to 1190.

As ALL modernlinear heads do, you take one comment, and turn into eternity.That's why you are linear---you, are a simply an amerikan line.

But I will take it easy on you, not insult, for I truly want you to do something:I want you to invest every penny you, your home, borrow all you can, to do this---BET YOUR LIFE ON 1322 SPX. PLEASE. DO IT. JUST FOR ME, ANON20.

Actually there was a report out within the last hour from S&P indicating another warning for a possible European recession. So while price action may be controlling the markets, this apparently was the trigger for more selling. Dow down 30 points now, though the other indices are still in the green but dropping rapidly. SPX now down to 1217.

covered and out for the day at 1217- options can be whacky, and i think we'll close around this support today... next week is up in the air so hopefully pretzel you'll have a charts for our stocking stuffers-

Nope, they were put on watch, but its imminent. And when the S&P downgraded the US they did it after the bell on a Friday. I'm looking for that today - we'll see what happens. Could be next week/weekend.

Also, my bigger short is ES, so I can try to get out Sunday night if anyt bazookas fire over the weekend.

Morning all, and PL in particular! I don't wanna take credit -and I am sure y'all noticed it yourself, and as PL pointed out nicely in his post- but yesterday I posted a nice trend-channel graph in yesterday's comments. I've attached it again; and law-frikin-behold, it did exactly what it was supposed to do: top at 1230 and then down we go.

What really strikes me is the absolute frikin symmetry of the whole thing; is this some sort of bot-mathematical-joke or some? Sure to me doesn't look random at all. I kinda find that scary; as if it's on big TRON or some....

FWIW: Astro update - the weekend does not have happy camper energy. Moon in Libra - "Let's find a diplomatic solution" is at odds with Venus square Saturn -"Stop squeezing my cash!!! or I'm not feeling the love right now."

Astro may call for short term trend reversal Mon-Tues. I'll update over the weekend with Pretzel.

Just checking in from my phone quickly when I should be sleeping. How's my latest reversal zone call looking? ;)

Bulls only hope now is back above today's high. Conversely, if bears can take out recent lows, it should be game over for da bulls -- but this isn't required at this stage. ABC as charted currently appears correct. Refer to preferred count above for my current expectations. Barring something really weird now, everything is playing out perfectly so far.

RE: mcleod.mf. not happy camper means bearish energy that could turn by Mon pm or Tues. However, in line with PL's counts, washing thru down to 1200 or 1190 may set us up for a bounce next week.

Specifically, by Tues, Sun sextile Neptune (leadership has some illusion for you) and Venus square Jupiter is more of a "Risk On" energy. Jupiter is stationing direct on Dec 25 making its energy front and center. Jupiter is frequently associated with opportunity/growth/hope. HOWEVER. Jupiter basically expands what it touches; can act as an accelerant. If a panic starts, it will be fuel on the fire. Keep in mind that can also be a panic rally.

Wow. What a battle going on. Downward channel still holding, rising trendline since Wed. holding... will we get resolution today... I'm thinking not and the resolution will happen on the futures... when most of us can't trade.

One last thing real quick regarding the "channel" - you'll note the upper trendline which rejected the rally has been on my charts for a couple days... If the preferred count is correct, the lower line of the channel will break next week, and a new crash channel will replace it. K, back to sleep. :)

Another look... as if we all aren't glued to the screen anyway... except PL who is sleeping and missing the battle royal. 5 min... will the rising trendline since Wed. hold or do we fall into no man's land ~1209-1216

DR, yeah, I was just about to update the previous channel I showed with the (new) rising trend line, but that trend line is still within the bigger downward channel, so not until the channel is broken (today's high taken out today or monday) would I put too much weight on the rising trendline. time will tell

I'm holding a very small short position on PCLN. I really don't want to see it trade significantly over 460. I'm looking for this pop up to turn back between 456 and 460. I think PCLN will depend on the market movement next week. If the market turns down I will hold the PCLN short. If the market moves up I will roll out of the PCLN short and look for a better entry.

If I'm looking for a support line to firmly hold I really would like to see movement away from support line once it has been tagged. The action to me looks like the market is grinding along the support line and will eventually grind through it... but this could be my bearish sentiment speaking

Just chiming in here. The last two slightly 'up' days have to positively demoralizing for sellers.

That push from 1,231 to 1,217 thay lasted TWO AND A HALF HOURS without even a one point retrace the entire time was a complete and thorough ass-kicking. When you gap up seven on the overnights, sellers lay off to let you take it up another six with little resistance . . . and then THAT happens to you. Hmmm.

In reality, buyers have lost every attempt to advance the ball up the field and have been playing defense of 1,215. Because once that gives way, we're at 1,200 and then 1,180 in a hurry.

Last two days were good days to trade the ranges and go short at easy to identify junctures, where you'd expect sellers to mount a defense. Which they have every single time.

Barring some major news event, there's no question right now who owns this market. Opex will be behind us on Monday, and then the rundown can commence in earnest.

still channel surfing and still in PERFECT symmetry. Who are the brilliant mathematicians who write the algorithms for the market bots??? It's too obvious IMHO. This is just not random trading, this is all fixed within set parameters... or???

adding to my case of perfect symmetry and thus NO randomness at all, see updated figure. I just added a few parallel trend and center lines and it all PERFECTLY matches up... 1220 close today???? hell yep

Looks like the bulls tried to break out in the final minutes and the bears held the line at 1220 and change. It will be very interesting to see how this resolves. I'm holding a short position over the weekend but I wouldn't be surprised to see another push up to the top of the current downtrend line from the July top. Just to throw the shorts another head fake and allow the big boys to do some more distribution. But I have a lousy daily track record. I'm much better at the intermediate time frames. Definitely looking for PLs take on today.

I'm holding shorted FDX into the weekend, after a huge bull run following earnings yesterday. At one point today it hit $10 above it's Wed close, give or take a few cents before it started to pull back.

As for the SPX, using my very own (at my own risk) unproven and barely tested "Green wave" method I'm calling today's pullback from 1231.04 the start of a 3rd wave that will drop to about 1165 before the next larger correction occurs.

That move if correct would stop just above the Nov 25 lows, which seems very plausible.

DR, if you look at the symmetry in the channels, i.e. see my previous charts; you'll notice no gain or losses between beginning of Dec 7 and end of Dec 13... (low of Dec 7 equals roughly top of Dec 13, right before FED's announcement). The step change came on Tuesday during the "FED sell-off"

Yes. I see the levels. We seem to be really moving into a wedgee, but I'm still very hesitant to push a lot of chips on the table;(1) I don't know how the wedgee will resolveand(2) Bernanke has a lot more chips than I do.

ANON20, for some reason you think investing is like gambling, put it all on red and let it ride. You see, I have the option to wait and see how things work, to change my mind according to new information, and most importantly taking proper risk management actions. The above question was a trick question, as the volatility from your all or nothing investments will always result in a 100% loss, mathematically. You got lucky to get some of your capital back. You now have to have the return of two perfectly respectable years, just to get back to even. The risks you take will always lead you to bankruptcy. You invest with emotion, without risk control. That is almost always a great fade.

What really concerns me is the amount of shorts in the Euro. If the Euro rallies next week, we can see the bully come out to play. Especially since the RSI hasn't made a lower low and the MACD is showing a bullish divergence.

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